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Battle lines: Too many hospitals vs. economic jolt

Newer hospitals break into black

Two of Detroit's newest suburban hospitals are posting profits this year after initially posting losses.

Henry Ford West Bloomfield is on schedule to post its first profitable year since it opened in early 2009; and Providence Park Hospital in Novi, which opened in late 2008, also started recording profits in its second fiscal year and is hitting its original financial projections, officials said.

"We expected to lose money the first three years -- it's a new business," said Dwight Angell, Henry Ford's director of media relations.

In fiscal 2011, Henry Ford's unaudited financial statement indicates West Bloomfield will lose between $5 million to $8 million.

"Each year we decrease our losses," Angell said. "We are on budget to be profitable this year."

Both hospitals were made possible in 2002 during a lame duck legislative session that allowed the parent organizations to bypass traditional certificate-of-need rules to open.

Joe Hurshe, Providence Park's interim president and vice president of operations with Warren-based St. John Providence Health System, said surgical patient volume has been increasing and there are plans this year to add two operating rooms and a wide-open magnetic resonance imaging machine.

Over the past 14 months, West Bloomfield has averaged $2 million per month in positive operating cash flow. Some 13 months after it opened and eight months before it was expected, the hospital showed positive cash flow, said Asad Malik, the hospital's vice president of finance.

Gerard Van Grinsven, the hospital's CEO, said there are several good reasons why the hospital has improved financially.

Patient admissions have grown 12 percent in 2011 to 12,553 from 11,238 and projections for 2012 show similar growth, Van Grinsven said. Births have increased 6.1 percent to 1,619 from 1,526.

Emergency department visits also have increased by 9.3 percent to 37,715 from 34,507.

Malik said the hospital is building three operating rooms in February and is expanding this year its urology robotics program and pediatric service.

"We plan on low double-digit growth this year," Malik said.

—Jay Greene

Stymied in its effort to change state regulations that control hospital growth, McLaren Health Care may turn to the Michigan Legislature to get a long hoped-for hospital in Independence Township approved as an economic dev-elop-ment project.

On Feb. 1, Flint-based McLaren filed two certificate-of-need applications to build a hospital in the township and transfer 200 unused beds from McLaren-Oakland, the former POH Regional Medical Center, in Pontiac.

Incarnati

McLaren CEO Phil Incarnati said that if the CONs are denied in July, when they are scheduled to be heard, Mc-Laren will go forward with plans to seek special legislation that would allow construction on 80 acres that is part of the McLaren Health Care Village of Clarkston.

Current CON regulations prevent hospitals in metropolitan areas from transferring beds farther than two miles. McLaren's proposed site is 9.4 miles from McLaren-Oakland.

Incarnati said McLaren prefers to go through the CON process, but "the CON commission needs to recognize that changes need to be made with the geographic limitation (two miles) for a new hospital."

The filing came after McLaren had unsuccessfully attempted in December to change CON regulations to permit replacement hospitals more than five miles away from an existing hospital, according to Bret Jackson, president of the Economic Alliance of Michigan, a Novi-based business-labor coalition. That rule change would allow for construction of the proposed hospital.

The Economic Alliance in a statement to Crain's said the rule change would have resulted "in hundreds of millions if not billions of dollars of unneeded capital investment in Michigan's health care infrastructure. This would have a devastating impact on the cost of health care benefits and the loss of thousands of jobs for Michigan's residents."

Jackson said there is no need for the proposed McLaren hospital because the six hospitals within a 22-minute drive of Independence Township operate at a 53 percent occupancy rate based on 989 licensed beds.

"Putting a new hospital in Clarkston is just trying to steal market share away from other hospitals," Jackson said. "Patients are being taken care of now" by the area's hospitals.

McLaren's case for the hospital rests on the argument that northern Oakland County is growing and can financially support a $308 million hospital with 25,000 annual patient discharges, and that the distance to other hospitals can be problematic.

The closest hospital to the proposed hospital after McLaren-Oakland is St. Joseph Mercy Oakland in Pontiac, at 11.2 miles; followed by Huron Valley Sinai and Crittenton Hospital Medical Center, at about 16 miles; and Henry Ford West Bloomfield, at 18.3 miles.

Incarnati also disputes that the hospital will drive up health care costs, saying that McLaren is the lowest-cost provider with the highest case mix of any hospital organization in Michigan.

Those arguments have won the support of Oakland County Executive L. Brooks Patterson, who says the project will create 2,000 to 3,000 jobs and provide an economic development jolt to businesses.

"I live in that area," Patterson said. "It is one of the fastest-growing sectors we have, and McLaren is willing to make a $300 million investment to create up to 3,000 jobs. We need a hospital because people have to drive 20 minutes to the nearest one."

The legislative route has precedent.

Two other Detroit-based health systems accomplished the same CON bypass maneuver in 2002.

During a legislative lame duck session, Henry Ford Health System and St. John Providence Health System won special legislative approval to transfer beds from existing hospitals to new hospitals in Oakland County.

In 2008, 200-bed St. John's Providence Park Hospital in Novi opened, followed by 300-bed Henry Ford West Bloomfield Hospital in 2009.

"McLaren is going to use the same pathway as St. John's and Henry Ford," said Jack Weiner, CEO of St. Joseph Mercy Oakland.

Weiner said McLaren's specific route would be through the Senate Economic Development Committee, not through the Health Policy Committee.

"They are working with Sen. (Mike) Kowall (R-White Lake), to get a bill through on a trumped-up economic development reason," Weiner said.

Weiner said McLaren wants to be ready to get enabling legislation for its hospital this fall if the Certificate of Need Commission rejects its request this summer.

Kowall, who is chairman of the Senate economic development committee, said he's considering introducing a bill and hopes it will be assigned to his committee.

Incarnati said McLaren has spoken with Kowall and other legislative leaders, but no firm strategy has been put in place.

"There is a lot of support for the concept despite the constant barrage from competitors to stop it," Incarnati said. "No one has addressed the patient care needs. People want to protect their own monopolies."

Amber McCann, press secretary for Senate Majority Leader Randy Richardville, R-Monroe, said there are no bills in the works on behalf of McLaren.

"The majority leader has heard talk about McLaren's plans, but he hasn't had any conversations on the topic and doesn't have a position," McCann said.

Rob Casalou, CEO of St. Joseph Mercy Ann Arbor, said McLaren's effort to build a new hospital is reminiscent of his efforts to build Providence Park, where he was CEO before joining St. Joseph's.

"I supported new hospitals in 2002," Casalou said. "I am on the opposing side now because the dynamics in health care have changed dramatically. Admissions are going down or flat."

Casalou, who also is chairman of the CON commission's Hospital Bed Standard Advisory Committee, said McLaren was initially supportive of a rule change that would require hospitals to remove licensed beds if they have less than 40 percent occupancy and seek CONs for beds.

"We met for six months and in the last 10 minutes of the last meeting McLaren made (the) proposal that would have dismantled the CON program for hospital beds," Casalou said. "We felt it was a disingenuous effort."

The CON commission is expected to consider the committee's recommended changes -- which do not include the McLaren proposal -- at its meeting next month.

Casalou said McLaren doesn't believe it will win a CON for the new hospital but wants to go through the regulatory motions before recruiting a legislator to submit a bill.

"They are aligned with Oakland County and convinced them this will be an economic engine, a bonanza, and are trying to sell that story across the state," Casalou said. "This is not unlike what we did in 2002."

Citing a recent study by Michigan State University, Casalou said there are 6,700 surplus beds in Michigan -- and 10 percent are located in northern Oakland County.

"There is a lot of risk (rising costs and negative impact to neighboring hospitals) to go forward with a new hospital. The only entity that doesn't have a risk is McLaren. They are assured of a good return," Casalou said.

Weiner said if McLaren gets a new hospital through legislative means as did Henry Ford and St. John, "CON will be dead. If you spend enough money, you can build a new hospital, dialysis center or MRI. There are no rules."

Weiner said St. Joseph provides care to nearly half of the people who need health care services in Independence Township. "It will have a significant financial impact to us," he said.